Although demand and overall economic activity in China has begun to recover in recent weeks, overall global steel production in May remained down compared with May 2019 levels.

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As much as China would have the rest of the world believe it has the coronavirus beat, both the authorities and the economy are acutely sensitive to the possibility of a resurgence.

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The Raw Steels Monthly Metals Index (MMI) increased by nearly 4.7% this month.

High expectations for steel demand recovery

In late March, steel demand was hit hard by the decline in automotive sales amid the COVID-19 pandemic.

As automakers began to restart their operations in early May, steel prices have seen some slight improvement, as we reported last month.

Nevertheless, the industry is confident in the recovery of steel prices.

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On June 4, the World Steel Association released its Short Range Outlook (SRO) for 2020 and 2021, forecasting steel demand will contract by 6.4%, dropping to 1,654 million metric tons due to the COVID-19 crisis. However, the forecast says 2021 steel demand will recover to 1,717 million metric tons, an increase of 3.8% over 2020.

The SRO suggests Chinese steel demand recovery will be “more visible in the second half of 2020. It will be driven by construction, especially infrastructure investment, as the government has put forward several new infrastructure initiatives.”

Within the steel market, the automotive industry will feel the greatest impact or consequences of the COVID-19 crisis. The steel industry is expected to lose sales of 20% in 2020 alone, on top of the losses of the past two years. Moreover, recovery might take several years due to slow income growth and remote working. The only silver lining is that safety concerns with respect to public transportation might boost demand for passenger cars in the short term.

Reactivation signals in the steel sector

After a 10-day stoppage in mid-May, ArcelorMittal resumed its operations at its Bosnia steel plant. The plant was forced to shut down due to low steel demand. The Bosnian government imposed a countrywide lockdown in response to the coronavirus outbreak.

The plant employs about 1,400 employees. It was only able to open after cost-cutting measures were implemented, such as renegotiating gas and power prices with suppliers, particularly after union employees declined a proposed 10-20% pay cut for managerial positions.

Other positive signals have been seen at Cleveland-Cliffs, as the company plans to restart its Tilden iron ore mine in Michigan at the end of June and resume the construction of its hot-briquetted iron plant in Toledo, Ohio.

The mine operation was suspended in April while construction of the plant was halted in March due to the decline in steel demand.

Will Chinese steelmakers have a post-pandemic competitive advantage?

There are some concerns about the competitive advantage Chinese steelmakers might gain from the pandemic crisis. Nippon Steel executive vice president Katsuhiro Miyamoto said, “China has managed to bring back economic activity quickly while countering the infection, which will give a relative advantage for Chinese mills in boosting competitiveness and financial health.”

“Given the high volume of steel output, China continues to import iron ore when supply is tight due to the pandemic, which will keep prices of the raw material at high levels,”he added.

Miyamoto might not be wrong. iron ore supply is getting tighter.

The world’s largest iron ore producer, Vale, revised its iron ore production guidance for the third time this year. The current production guidance for 2020 is between 310 million metric tons and 330 million metric tons of fine and undetermined for pellets from their initial reported production guidance of 355 million metric tons and 340 million metric tons of fines and 44 million metric tons of pellets.

The revision comes as Vale’s operations have been impacted by the COVID-19 crisis. The Itabira complex, which provides pellet feed for the pelletizers of the Tubarão Complex was ordered to shut down by the local government..

Nevertheless, Vale is expected to supply more iron ore to China in 2020 than in 2019, according to  the China Iron and Steel Association.

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Actual metals prices and trends

The Chinese slab price rose 3.1% month over month to $512.82/mt as of June 1 and the Chinese billet price rose 6.9% to $427.35/mt, both reversing last month’s trend.

Chinese coking coal rose 10.7% to $265.62/mt.

U.S. three-month HRC rose 7.4% to $535/st. U.S. shredded scrap steel fell 4.6% to $268/st.

Andrey Kuzmin/Adobe Stack

President Donald Trump had scant regard, nor interest, in the impact his decision in 2018 to impose 25% import duties on steel products would have on other markets around the world — his focus was, reasonably enough, purely on the U.S.

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The U.S. steel sector operated at a capacity utilization rate of 53.8% for the week ending May 30, the American Iron and Steel Institute (AISI) reported.

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Steel prices have been caught in a long-term downtrend since the summer of 2018 and, more recently, have faced a decline in demand related to the COVID-19 pandemic. 

Steel mills have suspended production at furnaces around the country amid the drop in demand, particularly from users like the automotive sector. After suspending production in March, Detroit’s Big 3 is only just this week restarting production at its North American facilities.

What does this all mean for steel prices?

In short, steel prices could spike — and industrial buying organizations will want to have plans in place before this happens to avoid losing some serious cash.

This week, MetalMiner released a two-page guide for anybody buying steel. The quick-hit guide features two likely market scenarios and five tips on how to prepare for a steel price spike before it happens.

“The most successful strategies will take the peaks off the price spikes,” said Don Hauser, vice president of business solutions for MetalMiner and former steel buyer for John Deere. “It’s not as important to get the best price as it is to make sure you never get the worst price.”

Amid the COVID-19 pandemic, steel mills across the U.S. have idled production amid declining demand.

With those supply sources taken offline and a projected demand recovery — particularly from the restarting automotive sector — the elements are there for some upward movement in steel prices.

“Mills have taken out an unprecedented amount of capacity in an effort to stabilize pricing,” Hauser continued. “Then they announced increases lately and have been diligent in not undercutting price for the sake of volume. Some of those increases have stuck. Finally, as demand picks up, prices will gain some legitimate upward pressure that will be accelerated by panic buying. This won’t be corrected until more capacity is turned back on but not until after the price spike.”

Download the steel price spikes guide.

Talk to a MetalMiner expert about steel prices.

Look at MetalMiner’s latest steel price forecast.

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This morning in metals news, Cleveland-Cliffs announced plans to increase its flat-rolled steel prices, China’s copper inventories have declined and the iron ore price moved up near $100 per ton Thursday.

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Once, it used to be a major supplier of steel for most of India’s domestic consumers.

But with COVID-19 and its subsequent lockdowns and the almost overnight disappearance of the steel market, the public company Steel Authority of India Ltd (SAIL) finds itself painted into a corner.

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The Raw Steels Monthly Metals Index (MMI) held flat this month.

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The Construction Monthly Metals Index (MMI) held flat this month.

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